Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

Apart from technology, if there ever was a sector that short sellers were afraid to touch for fear of being squeezed out vehemently, it has to be biotech. The remarkable rally that the sector saw in the years following the financial crisis caused even the most bearish of bears to change their thesis on it and increase their long exposure towards the sector. However, all of that changed last year. Once the biotech party fizzled out in mid-2015, investors fled the sector in droves, causing many noteworthy names in the biotech space to fall to unprecedented levels.

Now, as most seasoned investors know, the best time to invest in a sector or a stock is when the crowd has become fearful of investing in it. So, it isn’t a surprise that now that the dust has settled, the smart money is once again finding biotech stocks attractive given their depressed valuations. Taking that into account, in this article, we’re going to discuss five stocks from the biotech space which are currently trading below $1 and which became increasingly popular among the smart money investors that we track heading into the second-half of 2016.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details).

Let’s start with Navidea Biopharmaceuticals Inc (NYSEMKT:NAVB), which was held by seven funds in our system on June 30, up by one quarter-over-quarter, though the aggregate value of their holdings in it fell by more than 90% during the second quarter. Shares of the troubled biopharmaceutical company have been extremely volatile this year, as it’s faced litigation from its erstwhile creditor CRG over non-payment of $50 million in loans it received last year. Nevertheless, the company’s stock skyrocketed at the beginning of last month after it announced that it sold the North American rights of its product Lymphoseek to Cardinal Health for up to $310 million ($80 million upfront and up to $230 million in sales-based milestones), which is more than enough to pay off the debt it has taken from CRG, as well as other costs associated with the litigation. Despite those gains, Navidea Biopharmaceuticals Inc (NYSEMKT:NAVB)’s stock is still trading down by 12.24% in 2016.

CTI BioPharma Corp (NASDAQ:CTIC) was also held by one more fund that we track on June 30 than on March 31, though the aggregate value of their holdings in it plummeted by $8.19 million during the quarter. Had we compiled this list before February, CTI BioPharma Corp (NASDAQ:CTIC) wouldn’t have featured on it, as it never traded below the $1 mark before that period. However, the humongous decline that the stock suffered in February after the FDA shut down the clinical trials of the company’s lead product candidate pacritinib, caused CTI BioPharma to become a penny stock. In the last few months, the stock has fallen further, trading below the $0.50 level, and is currently down by almost 67% in 2016. Nonetheless, several hedge funds still see value in the stock, as they have more money invested in it than any other stock on this list. At the end of August, analysts at Piper Jaffray reiterated their ‘Neutral’ rating and $0.75 price target on the stock.